Tuesday, June 9, 2009

Digging Deeper Into Lean at Volkswagen Group of America – Interview With Jack McEowen – Part I Background

The absolute number one high priest of service parts Lean is someone Jack and I know fairly well – Tony Gomes. Tony came from the Toyota shop floor workforce and invented service-parts Lean at the Toyota San Ramon warehouse in the late 1980s. Tony lives and breaths Lean – after Toyota he went to Chopper Transportation, worked for us, worked at VW, and now is at Honda. Tony is a bottoms-up Lean kind of guy who often scolded me with terms like “Fear Free!” When I think of all the high priests of Lean sitting on Mount Olympus, I see Tony sitting right there in the middle. But, there are a few other priests of Lean. Don Johnson at Ford implemented Lean across the most innovative parts supply chain ever designed – he packaged all this into the Daily Parts Advantage. It took him a tad more than a year to transition from old to new, and his team did it with stellar success. Anu Goel, Joe Kory, Helmut Nittman, Kent O’Hara, and the fabulous John Sullivan were key members of this dream team. Charlie Hyndman came out of manufacturing and with his team spread the implementation of new “Template” warehouses with Lean methods over a bunch of years. It is interesting to study the High Priests of Lean, but many of us tend to give up before we really start emulating them. There are simply too many manufactured excuses:

Toyota has a very different culture than anybody else, certainly different from us.

We simply don’t have the time or patience for a bottoms-up approach to Lean.

Don’t underestimate the costs of all that change – we simply don’t have the budget.

Ford and GM’s scale is way beyond us – not comparable.

They developed very specialized versions of Lean that were meant for UAW shops.

We are OK as we are now – my guess is that there’s not really much difference in our productivity compared to their average.

I don’t trust the metrics – this is apples and oranges.

We are different.

Based on my metrics, we are already best-in-class.

Yeah, well, we are already doing all that stuff and we are Lean right now.

To counter all these excuses, the VW (shorthand for Volkswagen Group of America) Lean team also sits on Mount Olympus with the other Priests of Lean. VW has improved facing warehouse productivity by 120% since the 2003 NASPC Data book. This is a remarkable accomplishment in so short a period of time. The multi-colored chart tells a great story. The shaded area represents the 5 quintiles of warehouses that we have tracked for about 17 years. Of the 200 or so parts warehouses that we kept tabs on, we divided them into 5 equally sized groups; with approximately 40 parts warehouses in each color band. As you can see, the ceilings of each band have risen over time. The top quintile – Q1 – is characterized by steadily higher levels of productivity. In other words, the target for “best” is moving each year.

The colored lines represent VW’s North American parts warehouses; the dotted black line (barely visible) is the average productivity of all VW’s NA PDCs. Starting in 2004, VW initiated a march from its comfortable home in the bottom quintiles to 2007, when it reported all warehouses in the top quintile. In 2006 it missed by a nose in having all 7 facilities in the top quintile. VW’s ride to best-in-class has been rapid, steady, sustainable, and, most importantly, capable of emulation. How did they do it? I talked with Jack McEowen to find out.

Of all the Lean operations we have closely examined at NASPC, VW’s is the most relevant and interesting. First off, we all saw it unfolding year-by-year at the conference – the march to best-in-class could not be ignored. VWGoA is not GM, Ford, or Mopar – not massive in scope with specialized labor requirements. It was not a Toyota company, yet it had reached a level of productivity comparable to Toyota. It did not spend fat wads of cash to become lean. It did not immerse itself in years of cultural training and outfit its folks in dojo attire to simply start its Lean journey. Jack described VW’s journey in roughly 4 steps/phases:

The Vice President of Service-Parts became committed to business system evolution and standardization based on a massive global SAP implementation effort. He was also quite savvy and paid attention to where VW was vs. others in terms of productivity metrics. The challenge to his team was to evolve, or be evolved by others. The numbers, in comparison to others in the industry, told a convincing story that change was a comin’.

The big-bang improvements came from implementing standardized business processes and systems. The excuse for this was SAP – but, ultimately it was just an excuse. GM’s excuses were their “Template Warehouses”, Ford’s excuse was DPA – bottom line is that mostly it is an “excuse” that matters, not what the excuse is. Others have standardized business processes based on other momentum generating events. Standardizing on better, but still sub-optimal methods and processes gave VW huge gains in productivity. Implementing these under a commitment to a metrics-driven Lean culture leads you on the journey to excellence and improvement. The Big bang within a metrics-driven Lean culture that focused on individual accountability of results got VW within reach of the First Quintile.

Enterprise improvement came from a simple adoption of Continuous Improvement (CI) processes. Jack had worked with Lean at 5 previous employers. Jack’s focus was on inventory and Troy Smith’s focus was on warehousing. Jack described Continuous Improvement at VW. “It came down to a matter of finding a way of making the changes we needed to make. I was familiar with 6-Sigma, Kaizen, Cycle Takt time … , but we needed to find an easier way to get there without spending a year of up-front time in training and non-productive work. I could not translate the number of black belts we might have in a facility into LHY productivity improvements.” So, they went simple, fast, and inexpensive. This step got them into the First Quintile and is keeping them there.

Sustainability is VW’s challenge for the future. As would be expected, VW’s CI efforts have sliced and diced work processes and made them fairly VW-unique. This limits their ability to quickly cope with growth – external hires cannot come aboard and immediately start contributing. They need to be trained and indoctrinated into the new VW Lean Culture.